How Long Can Tax Returns Be Audited?

A tax audit involves an examination of a taxpayer’s accounts and financial information to ensure accuracy and compliance with tax laws. Understanding the specific timeframes during which the IRS can conduct these examinations is an important aspect of tax compliance. These time limits, known as statutes of limitations, aim to provide a degree of certainty for taxpayers regarding their past tax obligations.

Understanding the Standard Audit Period

The standard timeframe for the IRS to audit a tax return is three years. This period, often referred to as the “three-year rule,” generally begins from the later of two dates: the date the tax return was actually filed or the original due date of the return, including any extensions. For example, if an individual’s 2023 tax return was due on April 15, 2024, but they filed it early on March 1, 2024, the three-year audit period would still start on April 15, 2024; conversely, if that same 2023 tax return was filed late on December 1, 2024, without an extension, the three-year period would commence from the actual filing date of December 1, 2024. After this three-year window closes, the IRS typically loses its legal authority to assess additional tax or initiate an audit for that specific tax year. This standard period covers the majority of tax filings and provides a baseline for taxpayers to understand their audit exposure.

Situations Extending the Audit Period

While a three-year audit period is common, specific circumstances can extend this timeframe. One such situation involves a substantial understatement of income. If a taxpayer omits more than 25% of their gross income from a tax return, the audit period extends to six years. For example, if someone earned $100,000 but only reported $70,000, they would fall under this six-year rule. Another scenario with an extended audit period occurs when a tax return is never filed; in such cases, there is generally no statute of limitations, allowing the IRS to audit that tax year at any point in the future. Furthermore, if a tax return is found to be fraudulent, there is also no statute of limitations, enabling the IRS to audit and assess taxes without any time constraint.

Agreement to Extend the Audit Period

Taxpayers may receive a request from the IRS to voluntarily extend the audit period for a specific tax year. This occurs when the IRS needs more time to complete an examination, perhaps due to the complexity of the issues involved or if they are awaiting information from third parties. The formal document used for this consent is Form 872, “Consent to Extend the Time to Assess Tax.” Signing Form 872 can prevent the IRS from issuing an immediate Notice of Deficiency, which would formally propose additional tax. The agreement specifies a new expiration date for the audit period, providing both the taxpayer and the IRS additional time to resolve the audit. While taxpayers have the right to refuse such a request, agreeing to an extension is often a common practice during an audit to facilitate the process.

Conclusion of the Audit Period

Once the applicable audit period, whether standard, legally extended, or extended by mutual agreement, has expired, the IRS loses its legal authority concerning that tax year. This means the IRS cannot assess additional tax, demand payment, or take collection actions for that specific period. The expiration of the statute of limitations provides finality to taxpayers regarding their tax obligations for that year. This closure allows taxpayers to have certainty about their past tax liabilities and indicates when it may be appropriate to discard tax-related documents. The statute of limitations serves as a protective measure, ensuring that taxpayers are not indefinitely subject to potential audits for past tax years.